Agenda item

68.1     The Committee considered a report providing an update on the investment activities undertaken by the ESPF.

68.2     The Committee’s discussion included the following key issues:

·         The Committee welcomes the new investment adviser, Isio’s, plans to undertake  climate change scenario modelling of the Fund’s assets, as it will help make it clear what the Fund’s climate risks are in relation to both assets and liabilities. 

·         Commercial property is under huge pressure due to COVID-19, but office and industrial property is likely to recover, although high street retail property is likely to continue to struggle. The Fund’s exposure to property, via Schroders, is mainly in industrial property.

·         Funds with an ESG tilt have performed well due to the low oil prices and challenges to the industrial sectors from COVID-19. Nevertheless, Isio is confident the Fund is aligned with the general direction of investment (in favour of ESG) and will benefit from early adoption of these equity funds as more money is poured into them. 

·         The Committee will in future consider reports on how ESG considerations are factored in to the M&G Alpha Opportunities Fund, which has exposure to fossil fuels via its holding private credit.  M&G is on the IIGCC advisory group.

·         The Fund now has exposure to Bitcoin via Ruffer. It was highlighted that Bitcoin mining is very carbon intensive – Isio advised that they had discussed this holding and ESG credentials with Ruffer, who believes that Bitcoin is less carbon intensive than gold mining which this holding replaced. In addition it was noted that  the institutional investment in it has reduced its previous association with criminal activities.

·         It has proven difficult to increase the Fund’s asset allocation in infrastructure to the stated goal of 8%. The Fund is currently at 6% having recently invested 2% in ATLAS Global Infrastructure. This could be resolved potentially by investing more in ATLAS, which was not the original plan, or waiting for other opportunities for investment in illiquid assets, however, investor demand is currently very high so it is difficult to find opportunities. Officers were asked to look into the options to bring this asset class up to the agreed allocation.

·         In response to Isio’s review of the Fund’s passive market capitalisation, the Committee took the view that officers should increase equities held in active management to 62.5% and withdraw all assets held in UBS Developed and UBS Emerging markets (passive regional equities) to equity funds that favour companies more aligned to the funds responsible investment position, namely consideration of Osmosis Resource Efficiency, if this can be accessed through UBS and remain within the ACCESS pool; Longview; and a new allocation to one of the active managers in the ACCESS pool, for example, Bailie Gifford. The Active managers would also be able to retain exposure to emerging markets, which is an important element of the Fund’s strategy.  The preferred mix of mandates is set out in resolution 2).

·         The Committee also recognised that UBS may not be able to access Osmosis Resource Efficiency mandate cost effectively. If that is the case, officers should implement an alternative mix of mandates set out in resolution 3) by increasing assets held in Storebrand Global ESG Plus and ‘Core’ Active ACCESS pool managers. This would increase the ratio of active management to 67.5%.

·         The Committee continued to discuss the UN Human Rights Council list of companies involved in business activities in the Occupied Territories. It was noted that Osmosis Resource Efficiency is a fund that screens its portfolio of stocks against companies for UN Compact violations. Storebrand also screens the companies it invests in. Local Authority Pension Fund Forum (LAPFF) has also begun correspondence with companies on the list with regards to human rights. The Committee agreed it should consider how best to approach this issue by engaging with LAPFF on a form of words that it can commit to with regards Human Rights issues.

68.3     The Committee RESOLVED to:

1) note the report and its appendices;

2) agree the following strategic equity allocation approach for the equity mandate to replace the current passive market capitalisation investment:

Storebrand Global ESG Plus                      10%

Osmosis Resource Efficiency                    5%

WHEB Sustainability                                   5%

Wellington Global Impact                            5%

Longview Global Equity                              10%

‘Core’ Active (ACCESS Pool)                     5%

3). If the Chief Finance Officer believes the Osmosis mandate is not cost effective or not possible to access via the UBS passive platform, agree the following strategic equity allocation approach for the equity mandate to replace the current passive market capitalisation investment:

Storebrand Global ESG Plus                      13%

WHEB Sustainability                                   5%

Wellington Global Impact                            5%

Longview Global Equity                              10%

‘Core’ Active (ACCESS Pool)                     7%

4) delegate implementation to the Chief Finance Officer of the preferred strategic allocation for the equity mandate and the alternative strategic allocation if necessary;

5) agree not to engage in currency hedging as set out in Appendix 3;

6) request a future training session on crypto currency;

7) request a report on options for meeting the objective of having 8% of the Fund allocated in infrastructure; and

8) request a report on Local Authority Pension Fund Forum (LAPFF) recommended approach to companies with activities based in areas that infringe on human rights.